Struggling with frugality, debt, parenting, and weight

Fidelity changes their 529 plan expense ratios

Right after I mail the paperwork to transfer Daughter Person’s 529 from Fidelity to Virginia’s plan, I get a letter from Fidelity letting me know that their expense ratios on the index funds were dropping to 0.09% – doh!

Now I have to seriously do the math on which plan is better for us. Virginia allows up to $4000/year tax deduction for contributions – and they carry over from year to year (ie. if we contribute $5000 this year, we can take the $4000 deduction this year and $1000 next year – until it’s all used up). We have a state marginal tax rate of 5.75% and $4000 isn’t likely to drop us into a lower bracket. Right now, we contribute $600/year, reducing our taxes by ~$35/year, if we contributed up to the full $4000 (which is possible in the future), we’d reduce our taxes by $230/year.

The difference in expense ratios is 0.37% for our selected plan vs. 0.09% for Fidelity – so a difference of 0.28% – It’s current balance is about $5000, so that’s a difference of $14 in fees just this year, and that will increase as we go along – but the fee decrease doesn’t come close to the reduction in taxes we get. Since I’m pretty sure we’re going to be contributing more than $4000/year on average over her school life, we’ll be able to bank quite a bit, even with the higher fees on the Virginia plan. We can also reduce our expense ratio with the VA plan to as low as 0.24% by selecting another investment plan.

What do you think – am I doing the math right for figuring out our reduction in taxes?